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Although, we are still experiencing technical difficulties with our systems, we are providing a truncated report for activity on June 24. We thank all of you for bearing with us through this difficult period.

Markets continue their volatility on June 27 as the pound makes major new lows going back to 1985. Capital preservation is key in this environment and with the exception of the short call position in crude oil, which we recommended in the June 20 research note, clients should remain on the sidelines.

WTI crude oil:

August WTI crude oil lost $2.47 on heavy volume of 1,096,908 contracts. Volume exceeded that of June 22 when the August contract lost 72 cents on volume of 1,011,793 contracts and total open interest declined by 18,843. On June 24, total open interest declined again, this time by 21,775 contracts, which relative to volume is approximately 20% below average. The August contract accounted for a loss of 7332 of open interest.

COT report released on Friday showed that managed money is long WTI crude oil by a ratio of 2.84:1, which is up from the previous week of 2.32:1, but down from the ratio two weeks ago of 3.16:1. Managed money added 10,683 to their long positions and liquidated 17,595 of their short positions. Commercial interests liquidated 8,115 of their long positions and also liquidated 7,314 of their short positions. As this report has been compiled on June 27, the August contract is falling sharply, down $1.30 on substantial volume and has made a daily low of 46.28, which is below Friday’s print of 46.70. Continue to hold the short call position.

Gold:

August gold advanced by a massive $59.30 on extremely heavy record-setting volume of 628,549 contracts. Total open interest increase by a massive 50,091 contracts, which relative the volume is approximately 220% above average meaning huge numbers of very aggressive buyers or entering the market and driving prices to a new contract high of 1362.60.

As this report is being compiled on June 27, the August contract is trading $2.30 higher after making a daily high of 1340.00 on lower volume than Friday. The COT report revealed that managed money added 17,436 contracts to their long positions and liquidated 3,732 of their short positions. This leaves managed money long by a record 11.21:1, which was up from the previous week of 9.11:1 and nearly double the ratio two weeks ago at 6.11:1. Commercial interests added 1,892 to their long positions and also added 749 contracts to their short positions. In summary, manage money is heavily net long, and this makes gold vulnerable to a sharp setbacks. For example, if the British pound were to stage a counter trend rally, which will undoubtedly occur,  gold could decline sharply. Do not enter new bullish positions at current levels.

Silver:

July silver advanced 43.6 cents on heavy volume of 116,097 contracts. Total open interest declined by 1,533 contracts, which relative to volume is approximately 40% below average. The July contract lost 4,294 of open interest. The performance of silver on Friday relative to price and open interest was extremely negative and quite a surprise considering the magnitude of the move, volume and especially when comparing this to gold.

The COT report released on Friday showed that managed money added 10,589 to their long positions and liquidated 3,570 of their short positions. Commercial interests liquidated 924 their long positions and added 3,464 to their short positions. According to the latest report, managed money is long silver by ratio of 7.25:1, up from 4.92:1 made the previous week and more than double the ratio two weeks ago what 3.59:1.

As this report is then compiled on June 27 the July contract is trading 5.4 cents lower after making a daily high of 17.940, which is substantially below 18.370 made on June 24. The poor performance of silver on Friday is a potential canary in the coal mine for the gold market as well. Do not enter new bullish positions at current levels.

Dollar index: The September dollar index will generate short and intermediate term buy signals on June 27.

The September dollar index advanced by a very strong 2.047 points on heavy volume of 68,392 contracts. Total open interest declined by a massive 4,717 contracts, which relative the volume is approximately 160% above average meaning that short-sellers were powering the market higher on Friday not new buying. This is not a surprise considering that the COT report released on Friday showed that managed money was short the dollar index by a massive 4.37:1, which was down slightly from the 2016 record high short ratio of 4.48:1, but substantially above the ratio two weeks ago of 1.67:1. Stand aside.

Euro: September euro will generate short and intermediate term sell signals on June 27.

The September euro lost 2.35 cents on heavy volume of 390,719 contracts. Total open interest increased by 6,458 contracts, which relative to volume is approximately 35% below average. The COT report released on Friday showed that leveraged funds liquidated 13,970 of their long positions and also liquidated 5,027 of their short positions. This leaves leverage funds short the euro by a ratio of 4.79:1, up from the previous week of 3.02:1 and nearly double the ratio two weeks ago with 2.58:1. As this report is being compiled on June 27 the September euro is trading sharply lower again, down 91 pips and has made a daily low of 1.1003, which is above Friday’s print of 1.0947. Stand aside.

British Pound: September British pound will generate short and intermediate term sell signals on June 27.

The September British pound fell by a record 11.53 cents on huge volume of 506,100 contracts. Remarkably, total open interest increased only 4,201 contracts, which is approximately 55% below average. The open interest increase in the pound was not only below that of the euro, which on a percentage basis fell by a much smaller amount, but relative to volume, the open interest increase in the pound also was dramatically below that of the euro. The COT report revealed that leveraged funds liquidated 14,939 of their long positions and also liquidated 1,833 of their short positions. According to the latest report, leveraged funds were short by a ratio of 1.41:1, up from the previous week of 1.06:1 and the ratio two weeks ago of 1.13:1. Stand aside. 

Yen:

The September yen advanced 329 pips on volume of 291,817 contracts. Total open interest increased only 1,760 contracts, which relative the volume is approximately 65% below average. The COT report revealed that leverage funds added 963 contracts to their long positions and also added 3,477 to their short positions. According to the latest report, leverage funds are long the yen by a ratio of 2.96:1, down from the previous week of 3.44:1 but up sharply from the ratio two weeks ago of 1.75:1. As this report is being compiled on June 27, the September contract is trading 32 pips higher on the day, but has not taken out Friday’s high. The yen is vulnerable to Japanese central bank intervention, and we strongly recommend a sideline stance.

S&P 500 E-mini: The S&P 500 E-mini will generate short and intermediate term sell signals on June 27.

The September S&P 500 E-mini lost 87.25 points on huge volume of 4,184,892 contracts. Total open interest increased by a massive 168,488 contracts, which relative the volume is approximately 55% above average and represents a huge number of new short-sellers entering the market and driving prices to a new low for the move of 1999.00.

As this report is being compiled on June 27 the September contract is trading sharply lower, down 29.50 or -1.46% and has made a new low for the move of 1981.50. Now that the September contract is on short and intermediate term sell signals, the E-mini should experience a counter trend rally lasting 1-3 days and this would be the most opportune time to initiate bearish positions. However, in the current environment the market may continue to drift lower, but clients should not chase it. Stand aside for now.

10 Year Treasury Note:

The September 10 year treasury note advanced Friday by 1-18 points on huge volume of 3,126,849 contracts. Total open interest increased by a massive 128,828 contracts, which relative the volume is approximately 45% above average meaning aggressive new buyers were entering the market in huge numbers and driving prices to a new contract high of 134-070.

As this report is being compiled on June 27, the September contract is trading sharply higher again up 30 points on reduced volume. The yield on the 10 year note on June 27 is 1.45%, which is near the record low of 1.39% made during July 2012. The COT report revealed that leveraged funds added 29,590 contracts to their long positions and also added 39,353 to their short positions.

As of the latest report, leveraged funds are short the 10 year note by a ratio of 1.19:1, which is approximately the same as the previous week of 1.18:1, but up from the ratio two weeks ago of 1.09:1. On June 6, OIA announced that the September 10 year note generated short and intermediate term buy signals. We have no recommendation.